Traditionally, video games have been sold as physical products (cartridges, CDs, DVDs) in local stores, with the retailer, publisher and developer receiving a cut of the revenues from each copy sold. This distribution model has been the predominant system for selling gaming content ever since the birth of the video game industry and continues to be the main distribution channel today, accounting for over 90% of console game sales in 2008[1]. However, digital distribution of gaming content definitely a growing segment, with a projected 40% of online games revenue coming from digital distribution by 2012 and revenue from digital distribution of console games to surpass $1 billion by the same year[2]. Add this to that the fact that mobile gaming, which is predominantly digitally distributed, already generated $5.8 billion in revenues in 2008[3] and it’s clear that digital distribution will be a force to be reckoned with in the gaming industry in the near future. Due to the connectivity aspect of this distribution model, telecom providers are in a unique position to benefit by positioning themselves correctly in the value chain to maximize their returns.

From Brick-and-Mortar to Broadband

The origin of digital distribution of video games has its roots in the early years of the internet, where independent developers would post simple browser games that users would access through their websites. These games would eventually become more complex as connection speeds became faster, allowing for more powerful graphics and compelling gameplay. Additionally, aggregators who owned hundreds of these games, such as jippii and NewGrounds, appeared and created communities around their games. However, it was not until the early 2000s when broadband internet became widely available, that digital distribution of full-featured games developed by mainstream companies really took off. This distribution model is very similar to the traditional model (Figure A) and so far has been predominantly used for mobile games distribution.